Among the most widely used phrases in articles, conferences and meetings nowadays are variations on the theme of “the lines between sectors are blurring.” While this is indeed happening, it is a loose and partial view of the full story. What is actually happening is that brands are replacing sectors.
Our yearly Best Global Brands study shows how the fastest-rising brands and businesses are those that are firmly built around people’s needs and that constantly evolve to provide immediate, seamless and often simultaneous access to knowledge, relationships, experiences, products and services.
The growth of these businesses is an indication of how, over the past few years, the sources of competitive advantage have shifted from the supply side (e.g., manufacturing, economies of scale, knowledge, resources, technology and so forth) to the demand side (such as needs, attention, and relationships).
Therefore, while we have traditionally been accustomed to making sense of the business world through the lens of supply – i.e., sectors, industries, competences, product categories – today’s economic reality can only be understood through the lens of demand – i.e., needs, desires, experiences, benefits.
Take Amazon, one of the most dynamic and pervasive businesses. With its multiple and fast-evolving propositions, what sector is it in? It is hard to say. It is much easier to think about what promise this business seeks to deliver – with ‘fulfillment’ being a credible, if apocryphal, answer.
Likewise, some of the world’s fastest growing businesses are hard to ascribe to a sector as such. They no longer create a promise around capabilities, but build capabilities around an overarching promise, which defines what business they’re really in – from Google’s ‘access to information’, to Disney’s ‘magic’, to Apple’s ‘empowerment’. Anchored to their promise, these brands cross and combine categories, building seamlessly ecosystems of products, services, experiences and partnerships that are notionally diverse – but are, in fact, connected by that very promise. These are pure demand side businesses – founded more on the principle of what people will need, rather than what the organisations can make.
Hence, rather than a matter of brands within categories, it is increasingly a question of categories within brands.
This should not be confused with the traditional paradigm of diversification, whereby businesses would broaden their offering potentially across different sectors based on industrial synergies or pure financial appetite. Today we are seeing a different type of expansion, which looks more like the completion of an ecosystem connecting products, services and experiences gravitating around a specific promise and helping bring it to life. While diversification was a supply-side exercise, ecosystems are driven by demand-side synergies. And while diversification is typically additive in its results – creating incremental streams of revenues – ecosystems go beyond, accelerating growth by adding as well as multiplying income, thanks to well-thought through inter-plays between data and experiences.
As sectors merge and dissolve, barriers to entry – except the regulatory ones – will also naturally disappear. Brands will become the barriers. With the movement of talent, knowledge and technology being more friction-less than ever before, brands are the strongest long-term differentiators, and hence least imitable competitive asset.
The replacement of sectors by brands is not merely a conceptual observation, but bears significant consequences on four key strategic issues.
A few years ago, it was fair to think of the brand as the business strategy brought to life. The business strategy was the bedrock, and the brand would make it visible and understandable internally and externally.
Today, in many cases, the opposite is true. The brand – what a business stands for, both internally and externally – is increasingly the constant, with the business strategy adapting at an accelerating speed, at times across multiple, interconnected business models.
While in traditional marketing brand strategy was meant to create differentiation around a business model, today’s fastest growing companies show that business models are supposed to make brands constantly relevant.
The opportunity for a brand such as our client Moleskine is to explore potential interconnected business models that can combine to bring the promise of Inspiring Journeys to life through new, meaningful and relevant products, services and experiences, beginning with the Moleskine Cafè.
Specifically, a business’s purpose – its fundamental reason for existing – will become inseparable from the business strategy – and, in fact, central to it. The accelerating speed of social, technological and competitive change means that business will no longer afford their purpose to be an abstract, elegant encapsulation, but rather the North Star for navigating across seas of change.
The way organisations grow, thrive and change starts from people’s needs and desires; these combine with the leadership’s vision to build the brand’s purpose, which is then reflected into one or more interconnected promises, giving birth to exceptional experiences.
At a time where virtually everything in a business’s ‘what’ and ‘how’ must change before it has to, a brand’s purpose – its ‘why’ – should be a long-term center of gravity. Over time Nike, ranking #18 in our Interbrand’s 2017 Best Global Brands, has created an ecosystem of products and services threaded together by the purpose of ‘bringing inspiration and innovation to every athlete* in the world (*if you have a body, you are an athlete)’. It is simple to imagine a future where Nike may weave apparel, services, food, healthcare, education into a category of one.
The number of cases where traditional sector analysis will apply is likely to decrease. More and more, the competitive trajectories of brands originating from notionally diverse categories will overlap in unpredictable and intricate ways. The most dangerous competition will be hidden from sight – impossible to predict, hard to pre-empt, and difficult to challenge. The silver lining of this otherwise uncomfortable landscape is given by cross-industry partnerships, whereby the opportunities for mutually beneficial alliances have never been so exciting and potentially disruptive.
Think about the much-discussed arena of mobility (notice – a benefit, not a sector!), where businesses that just recently were not direct competitors – such as car manufacturers, city or state transport authorities, service providers such as car rentals, digital native businesses, consumer electronics manufacturers, and so forth – are converging around similar needs of similar customers.
In the nineties, the prevailing view saw the so-called ‘core competences’ as the engine of competitive advantage. Today, competences must shift and morph quickly and flexibly to surf the waves of change and the ability to play across categories – a key challenge for talent retention and growth, as well as a potential dilemma between culture and capability.
Netflix is an interesting case in point, whereby the transition from a distribution business (a supply-side definition) to an entertainment business (a demand-side definition spanning technology, production, content, creativity) imposed the need to radically rethink the business’s talent pool. An almost legendary internal presentation includes a slide drawing a comparison between a slide that defines the company as “a pro sports team” as opposed to a “family”, indicating that as the business changes so will needs and roles, and therefore people.
If, from a competitive standpoint, brands are replacing sectors, from a customer perspective they are playing wider and deeper roles in our lives. They use vast amounts of data about us to integrate diverse products, services and experiences in an ongoing cycle of promise and delivery. As a result, people and businesses will increasingly know more about each other. Their relationship will be more frequent and intimate than ever before.
This is changing the way we understand, judge, buy into and buy from brands. Long gone are the days when the only view on how businesses operated, what it stood for, or what it was like to work for it was through our exposure to a selection of glitzy billboards and print. Today’s intimacy, fuelled by technology, means that organisations are no longer black boxes, but transparent. Consumers, employees and audiences have access to virtually every single facet of a business, thus associating it to what it does, not just what it says or looks like.
And as businesses do more for us across different categories, the gaps between promises and deliveries is in permanent full view. Which means that, in addition to being transparent, organisations also need to be porous, constantly breathing in social comment and perceptions to re-oxygenate their entire system.
Today, growth requires brands – the overarching promise – and the business – its delivery – to move firmly hand in hand, in a journey of constant exploration, experimentation and renewal, moving freely across what once were sector boundaries.